Maximising the development impact of MDB callable capital | ODI: Think change

This paper brings together the results and policy proposals of a year-long project investigating MDB callable capital, supported by the MDB Challenge Fund and undertaken by a research team based at ODI. The project concludes in spring 2024 and comprises the following papers:

1. The legal underpinnings of MDB callable capital: implications and policy options (C. Humphrey)

2. Backstopping multilateral development banks: the fiscal context of callable capital for shareholder governments (B. Getzel)

3. How likely are multilateral development banks to need callable capital? Implications for risk frameworks and lending capacity (C. McHugh)

4. Enhancing multilateral development bank resilience and lending capacity: crisis management, recovery planning and improving loss-absorbing capacity (E. White and C. McHugh)

5. Making sense of hybrid capital for multilateral banks (C. Humphrey, E. White and C. McHugh)

Key Messages

Callable capital is a central pillar of the multilateral development bank (MDB) model, but stakeholders lack basic standards to understand its value to operational capacity.
The risk of a crisis requiring a capital call is less than 1% in conservative scenarios and the amount needed would be a fraction of the $891 billion currently subscribed.
The rules and processes for a capital call are ambiguous and need to be clarified at MDBs and in shareholder government fiscal accounts.
MDBs should modernise their approach to prepare for and recover from financial stress, including callable capital in an extreme scenario, to bolster resilience and market confidence.
Callable capital can increase MDB lending capacity, but doing so requires collective action by shareholders across MDBs to establish standards that are credible to capital markets.